UK government unveils £1,000 tax break for 500,000+ SMEs
Photo by Sebastian Pichler on Unsplash
The government has announced that upwards of half a million businesses may be able to benefit from a £1,000 tax cut from 6 April 2022. The reduction in the amount that companies must pay the exchequer was first announced by chancellor Rishi Sunak in last year’s Spring Statement.
The major change in the bill is an increase in the Employment Allowance, from £4,000 to £5,000. This means that SMEs will be able to claim up to £5,000 off their National Insurance Contributions this tax year.
The goal of the new changes is to reduce employment costs for firms. They mean that around 50,000 existing firms won’t need to pay either the Social Care Levy of NICs. The new total number of businesses that escape these taxes now totals more than 670,000 according to Companies House.
The government’s objective for the new tax cuts is to grow the economy and help businesses thrive after the impact of the pandemic. The chancellor said that the new measures come on top of a range of fiscal innovations already in place, including the popular 50 percent business rates relief, the 5p per litre cut in fuel duty, and the super-deduction. The hope is that the changes will invigorate British business post-Brexit, attracting more domestic startups and new entrants from abroad.
The government has a track record for increasing the Employment Allowance, having done so twice since 2014. It wants to show that it is doing everything in its power to support small businesses in a difficult economy. The new measures make it more likely that smaller firms in more regional areas of the UK will employ people in their communities. The government says that the changes mean that firms hiring four people or less will not have to make any National Insurance Contributions at all.
The vast majority (94 percent) of businesses that stand to benefit from the new tax arrangements are either small or micro, the government says. Sectors that look set to benefit the most include construction (which is dominated by small businesses and partnerships), professional and scientific activities, and the wholesale and retail sector. In making these changes, it is clear that the government is trying to stimulate certain areas of the economy more than others, though most companies will do better under the plans.
Other measures
The government, however, takes the current economic crisis seriously and has been doing what it can to support businesses over recent months. For instance, companies still have a year left to benefit from the one-time super-deduction, the biggest tax break in modern British history.
They are also benefiting from the Help to Grow programmes which specifically target SMEs and get them to adopt productivity-enhancing software that lets them be more productive.
High street businesses are also seeing benefits. The recent decision to cut business rates by 50 percent will deliver more than £1.7 billion back to small business owners and fledgling entrepreneurs.
R&D is a priority, too. The government is creating a tax regime that it hopes will make British businesses globally competitive and encourage more of them to do their own research and development. More plans will be set out in the Autumn.
How the market is reacting
Contrary to the furore over the increase in National Insurance, most businesses seem pleased with the changes in the tax code for SMEs. Many claim that it is a good time for growing a business.
The government is looking to provide everything you need to get started in business. The goal is to make the UK a more innovative economy post-Brexit so that it can better compete with the likes of Japan, USA, and Singapore. The hope is that by targeting the weak spots of the UK economy, productivity will increase and workers will be able to get more done in less time.
Growing companies appreciate the opportunity to reduce their annual national insurance liability. It means that they now have more savings to invest building their enterprises, such as hiring more staff or offering employment opportunities locally.
It’s also a welcome breathing space for many firms. Most companies are facing rising costs, so reducing tax take will prevent so much inflation from being passed onto consumers.
Smaller companies with employer National Insurance Contributions of £100,000 or less could only claim back £4,000 under old rules. However, that figure is now £5,000, representing a real saving for many firms. Whether it will be sufficient to help British business weather the coming storm remains to be seen.
